Traditionally, the time honored advice has been: get a steady job, stay in it until you are in your late sixties and then get pushed out of your company with a golden handshake. If you are lucky, you have a pension; otherwise you have to depend on social security and your savings. Then, you would go spend your limited remaining years on a beach somewhere.

It doesn't have to be that way!

Retirement can now be a target amount of money instead of a target retirement age. It doesn’t depend on your income, but on what percentage of it you save. Once your financial net worth hits a certain target amount, you are now Financially Independent (FI). This savings (lets call it the FIRE number), when invested wisely, can generate income for you for the rest of your life. You are now ready to Retire Early even if you are just 55, 45 or 35 years old!

The key is controlling your living expenses and saving a significant portion of your income. Increasing your savings rate can dramatically improve your chances of retiring early. Take a look at the table below.

Table showing the effects of different savings rate on the number of years to financial independence. 

Consider 10% – a number that most otherwise diligent people think is a good enough number to put aside for retirement.  If your savings rate is 10% of your take home income, then your spending is what’s left of it, i.e. 90%. At such a savings rate, it will take you 51 additional years to be FI! Somebody who starts at age 21, in this case would be financially independent only at age 72.

Let’s say he moves to 20% savings.  Now it will take him 37 years to then retire at 58. (That’s ‘earlyish’ retirement and is certainly better than retiring at 72 with 10% savings). As you increase your savings rate, the picture gets even better. With a 50% savings rate, the number of years to FI drops down to just 17. So that same person can now look forward to being financially independent at just 38 years of age! Such high savings rates are certainly feasible for somebody who has a high income or is part of a dual income family where the couple lives on one salary and fully invests the other person’s salary (this was true in our case).

There you have it! It’s not a walk in the park, but if you are motivated (and if the circumstances are amenable) early retirement is not out of the grasp of most people!